Best structure for startup/online platform

[JustAnotherNomad]

I have a couple of ideas for websites.
Basically a useful platform that should be free to use, and then revenue would be generated through affiliate links and from ads.
They could fail completely or they could generate a low, but consistent income stream - or somebody might come along and just buy the whole thing. Access to payment processors isn’t important at the moment, but then again, you never know which turn the projects will take further down the road, so it would probably be nice to have anyway.
As I have no idea which way if the projects will be successful, I’d like the setup and running costs to be as low as possible, a couple hundred $ max per year. At the same time, the company should enjoy good reputation. I’m not interested in a Seychelles company - which serious investor would consider buying such a company?

Since I’m currently tax resident in a tax-free country, it shouldn’t really matter much: I could go with a US LLC or a non-resident UK Ltd, for example, which I could simply own as an individual.
But my tax residency could change in the future. Or I might get married and divorced.

For that reason I’m wondering if it could make sense to add some sort of holding structure. An EU holding company (to use the parent-subsidiary directive) probably wouldn’t make sense as the business wouldn’t be tax resident in the EU, so the PSD wouldn’t apply. Except maybe if I use a Cyprus holding company? But that wouldn’t offer protection from creditors like an angry ex-wife. (No that it matters right now, I’m not even married yet, lol.)

What about something like a Panama foundation? I hear they are quite cheap. But I suspect they wouldn’t offer tax protection? But maybe they would offer creditor protection?

Any suggestions? Otherwise I might just go with a UK Ltd. owned by me as an individual...

 

[fshore]

I could go with a US LLC or a non-resident UK Ltd, for example, which I could simply own as an individual.

Does your current tax resident (and tax free) country have a tax treaty with the UK that would make the company UK treaty non resident?

Keep in mind that when selling a website/business it's quite common to sell just the website and the business without selling the actual company.

 

[JustAnotherNomad]

Yes, there’s a tax treaty, so that part should work.

I have to admit I don’t know anything about selling websites or businesses. How would you sell it without selling the company? Can you just sell the user base?
One case I forgot was that somebody wants to invest - in that case it would probably be good to be able to offer shares or something. I guess that could be difficult with a US LLC that is treated as a disregarded entity? I mean, you could probably add a member and have the LLC taxed as a partnership, but can you define ownership percentages and stuff like that? Maybe a UK Ltd. would work better?

 

[fshore]

How would you sell it without selling the company? Can you just sell the user base?

You sell the domain, software, IP, the contracts and arrangement you have with any freelancers. This is the easiest and more common unless it's a bigger deal.

 

[JustAnotherNomad]

Thanks. Can you easily share user data and active (paid) subscriptions, stuff like that?

Anyway, that option aside, do you think a UK Ltd. or US LLC would work well for this or is there a better option?
What about the holding entity? Would it make sense or is that something to think about later?

I’m just thinking that for people from high tax countries, it’s usually smart to set up a holding entity right away, before adding the holding entity becomes a taxable action (since the company is already worth something).
And I’m just thinking if my tax residency status should ever change inadvertently (such as getting stuck during my travels due to COVID... stuff like that), then it might make sense to already have something in place?

 

[CaptK]

Get the holding company set up now and that holds the IP and all the rights.
Licence it to yourself to your operation company in any investor sensible jurisdiction.
Marshall Islands or any other tax efficient jurisdiction. The money is in the licences when you sell either all or part of the company.

 

[JustAnotherNomad]

What IP/licenses would that be?
Wouldn’t such dealings add a lot of complexity? Remember, I’m trying to keep this as cheap and simple as possible as I have no idea which projects will be commercially successful.
I would also imagine that anything related to IP/licenses will be subject to additional scrutiny by authorities as well as all kinds of of anti-avoidance rules, especially CFC rules.
But maybe I’m missing something here?

 

[CaptK]

You live in a tax free state, so no issue there.
IP is the website, domain and its content and an MI company will cost you 500 if your current jurisdiction is more expensive.
Then the licence company can be wherever you want.
Just a generic agreement which can be redone when there is more in the kitty.

 

[JustAnotherNomad]

Ok, thank you.
So if somebody wants to buy the website, they would buy the website off the MI company...? As buying the company paying for the license wouldn’t make much sense as it doesn’t own the website. But buying the MI company wouldn’t make sense either because it would hold other IP as well. Then it wouldn’t be a very flexible solution?
And yes, I’m currently in a tax free state - so why would I need the MI holding company at all? For aaset protection? I could also just own all operating companies directly as an individual. I’m only thinking about additional protection for the future. But if I move to a high-tax country some time in the future (or I get stuck somewhere for too long), then all the anti-avoidance rules would apply.
So ideally any additional complexity would cover that as well. If it only works as long as I’m in a tax-free country, I’m not sure if it would be worth the additional cost/complexity. Ok, $500 is cheap of course. But it seems like it might make the structure less flexible, instead of more...

 

[CaptK]

You wouldn't need to use MI if your in a tax free state already.
It would be 2 companies, a holding company and an operation company .
Traveling will not a problem if you get stuck somewhere as so long as you show you had a return ticket and the airspace was closed. Or you can only stay a maximum amount of time due to visa free access and airspace was closed.

Now if you move you can set up a branch in the new country. Ie in Switzerland if you establish a branch office your tax can be mitigated or a UK LLP or even an LTD (as a marketing and sales office) can be quite beneficial.

Until this plandemic is sorted the excuse for everything is COVID. If I could tell you the stories coming out of the city with COVID as an excuse it is pure rape and pillage.

 

[JustAnotherNomad]

You wouldn't need to use MI if your in a tax free state already.

Yes, of course. My question was about risk mitigation (in case of a change of tax residency) as well as asset protection.

It would be 2 companies, a holding company and an operation company .

That would mean more complexity/cost for very little benefit, as far as I can see?

Traveling will not a problem if you get stuck somewhere as so long as you show you had a return ticket and the airspace was closed.

Lol. I love your bold statements. I can tell you that definitely isn’t true for all countries.
I know that several high-tax countries have zero tolerance. You could be in a coma in a hospital, if you exceed the threshold for tax residency, there’s no way out. Except of course if there is a DTA that would save you. They don’t care if you were only visiting your dying mother or if the flights were cancelled - you stay more than X days, you’re a tax resident. Period.

Now if you move you can set up a branch in the new country. Ie in Switzerland if you establish a branch office your tax can be mitigated or a UK LLP or even an LTD (as a marketing and sales office) can be quite beneficial.

Sure you can do that. Then they will pull it apart and have you prove that it’s not only set up on paper to save taxes.

 

[fshore]

You seem not 100% clear on the benefits of the holding company, and I'm not 100% clear either. I guess it would depend on the specific country where you would be resident. I don't quite see the benefits of a holding company without substance, if you would still be director and running the operating company. Anyway you could add a holding company later, before you become tax resident elsewhere. Might just create some extra work with updating bank relationships

I think that separating IP to another company etc will just cause complications for a small startup, especially when you live in a tax free country.

A UK ltd owned by you sounds like the optimal arrangement, if you're confident that you can get a tax resident certificate for the company from your resident country. I don't have experience in how to get HMRC to accept that a UK ltd is non UK resident, would be interesting to hear actual experiences with this.

 

[JustAnotherNomad]

You seem not 100% clear on the benefits of the holding company, and I'm not 100% clear either.

Generally the big advantage with a holding company is that, within the EU at least, your company can pay its corporate income tax and then you can use the holding company as your “piggy bank.”
From the holding company, you can reinvest the money into new businesses or even rental properties, without paying tax again. If you owned the business directly, you would instead have to pay tax on the dividends, before you could reinvest it. So it generally makes sense to use a holding company “just in case”. It can just be another Ltd. from the same country as the operating business, it really doesn’t matter as the rules should be pretty much the same for the whole EU. I believe the only thing that differs is how the countries handle the sale of shares held by a holding company. In some countries, it’s generally tax-exempt, in others there are some additional rules. So in most EU countries, people just use a holding company anyway. It’s completely normal and legal, there are no additional substance requirements, it’s just to separate themselves from the business.

Hmmm, maybe I could just use two non-resident UK Ltd. companies? In the current scenario, both would be tax resident in my tax-free country. But if my tax residency should change (say I get stuck in France or some other tax hell), the worst thing that could happen would be both companies becoming tax resident in France as well. In that case, the parent-subsidiary directive would apply and I would only have to pay the CIT. Wealth tax aside, I wouldn’t have to pay personal income tax, unless I pay out dividends.
Guess that might work?

The only downside would be that it probably wouldn’t offer any asset protection against an angry ex wife or stuff like that. For that I’d probably need a foundation? But would that foundation be recognized? I guess that would be the next question. Having a foundation that no court cares about wouldn’t help much.

 

[JustAnotherNomad]

Seems like my plan will be difficult to implement as it would require the other country to recognize the UK Ltd. as tax resident. For that you’d probably have to at least register some sort of permanent establishment or branch office, which would drive up the cost.
The UK has also implemented some sort of amendment to tax treaties called the MLI that basically added “mutual agreement” language to all treaties. So you always have to involve the authorities in the other country.
What a pity, I thought this could be the perfect solution.

 

[JustAnotherNomad]

But I guess this could work with US LLC’s, or potentially UK LLP’s? Provided that they would be treated as corporations by one’s country of tax residence. One holding company owning several operative businesses. The US LLC’s would elect to be treated as disregarded entities, meaning they would be taxed in the tax free country. If for whatever reason one’s personal tax residency should change unexpectedly, one could to have the holding company recognized as a local holding company, making use of the parent-subsidiary directive. So that the holding company could still be a piggy bank.
The big question, however, would be where the funds could be stored. If they are stored in the US, would US estate tax apply? Or would US estate tax apply regardless because the companies are incorporated in the US? Or would US estate tax not apply since the companies are disregarded for tax purposes?
Either way I guess this might be a good option. Once one of the startups becomes profitable, one could also add a foundation or trust as the owner of the holding company. That should solve the US estate tax issue - even if it won’t be recognized by the country of one’s personal tax residency - I think?
Anybody have some more insight? @fshore @Sols

 

[John Andrews]

Dude...you're overcomplicating it. Simply set up a non-resident UK Ltd and if you think you need asset protection, put it in a trust.

Out of curiosity, which country are you currently tax resident of?

 

[JustAnotherNomad]

There is no such thing as a non-resident UK Ltd. as far as I know? A UK Ltd. is always tax resident in the UK - unless a tax treaty allows for something else. Thus the term “treaty non-resident”. The problem is that the treaties usually say that the company must be considered tax resident by the other country, before the UK will agree and let go of its right to tax the company on its worldwide income. There’s no automatic in this, you need to go to your local tax authorities and explain that you’re running the UK Ltd. from that country instead. Then when they give you some sort of confirmation of that, you can ask HMRC not to tax the company. You can’t just tell HMRC “Hey, I’m not in the UK, I’ll pay taxes elsewhere, bye.”
But for most countries, that will either mean you have to pay taxes there instead, or you would at least have to pay quite a bit of money for setting up a local branch office/permanent establishment.

 

[John Andrews]

unless a tax treaty allows for something else. Thus the term “treaty non-resident

This is what I was referring to

you need to go to your local tax authorities and explain that you’re running the UK Ltd. from that country instead

Ok so go ahead and do that?

 

[JustAnotherNomad]

Registering a branch of a foreign company costs about $30k in the UAE. Not exactly what I had in mind.

 

[fshore]

But I guess this could work with US LLC’s, or potentially UK LLP’s? Provided that they would be treated as corporations by one’s country of tax residence. One holding company owning several operative businesses. The US LLC’s would elect to be treated as disregarded entities, meaning they would be taxed in the tax free country. If for whatever reason one’s personal tax residency should change unexpectedly, one could to have the holding company recognized as a local holding company, making use of the parent-subsidiary directive. So that the holding company could still be a piggy bank.
The big question, however, would be where the funds could be stored. If they are stored in the US, would US estate tax apply? Or would US estate tax apply regardless because the companies are incorporated in the US? Or would US estate tax not apply since the companies are disregarded for tax purposes?
Either way I guess this might be a good option. Once one of the startups becomes profitable, one could also add a foundation or trust as the owner of the holding company. That should solve the US estate tax issue - even if it won’t be recognized by the country of one’s personal tax residency - I think?
Anybody have some more insight? @fshore @Sols

US LLCs doesn't need to elect to be disregarded, that's the standard treatment.
It shouldn't matter if they're treated as disregarded or a corporation in the tax free country, as there should be no tax anyway?

There is no automation that a foreign company is tax resident in the country that you are/become tax resident. For example you can be tax resident in a country because you own property there, but that doesn't mean that the country will decide that the foreign corporation is tax resident there.
For storing funds I'd suggest storing it in your personal accounts. I believe estate taxes would apply for the LLCs.

I also think you're overthinking it a bit. But if you're as hard working on your business as with your tax research then you might be very successful
I would just setup the website and get started. Setup a company when needed (but right from the start if limited liability is important).
I've met some people that have worked so much with registered a company, opening bank accounts before even started with a business that probably never got anywhere.